Land Values and Chinese Agriculture

Wendong ZhangAssistant Professor of Economics and Extension Economist

wdzhang@iastate.edu515-294-2536

2016 Pro-Ag Meetings, Clarinda, IA, December 15th, 2016

The new Mike Duffy

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A Quick Introduction:Dr. Wendong Zhang

– Grown up in a rural county in NE China– Attended college in Shanghai and Hong Kong– Ph.D. in Ag Econ in 2015 from Ohio State– 2012 summer intern at USDA-ERS on farm

economy and farmland values– Research and extension interests: land value, land

ownership, agriculture and the environment, China Ag

China’s Provinces

High-Speed Rail in China

My Hometown: Shenxian, Shandong Province

Greenhouse – plastic film - Shandong Province

Intensification of Land-Use in China

Source: EconomistIMF

Chinese economy

Pudong, Shanghai in 30 years

China vs. US

Zhang 2015 Ag Policy Review

Of Maize and Markets: China’s New Corn Policy

Wu and Zhang 2016 Ag Policy Review

Of Maize and Markets: China’s New Corn Policy

Wu and Zhang 2016 Ag Policy Review

Of Maize and Markets: China’s New Corn Policy

Wu and Zhang 2016 Ag Policy Review

Why Care About Farmland Market?

Source: USDA ERS

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2011 2012 2013 2014 2015F

Billi

on $

Distribution of U.S. Farm Assets

Real estate Livestock and poultry Machinery and motor vehicles

Crops stored Purchased inputs Financial assets

AVERAGE VALUESall farmland 1941−2016

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1000

2000

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10000

1941

1944

1947

1950

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1986

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2016

Land

Val

ue ($

per

acr

e)

Iowa Nominal and Inflation-adjusted Farmland Values 1941-2016

Nominal value Inflation-adjusted value (2015 dollars)

$7,183As of Nov 16

-5.9%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

1942

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Annu

al P

erce

ntag

e Ch

ange

(%)

% Change in Nominal Iowa Farmland Values 1942-2016

District AverageValue

% Change

HighQuality

% Change

Medium Quality

% Change

Low Quality % Change

Northwest $9,243 -4.6% $10,650 -5.2% $8,468 -4.1% $6,019 -3.7%

North Central $7,562 -5.0% $8,442 -5.9% $6,992 -4.9% $5,164 -3.9%

Northeast $7,313 -7.0% $8,892 -7.1% $6,994 -6.2% $4,847 -7.5%

West Central $7,358 -8.7% $8,874 -8.4% $6,870 -9.4% $4,577 -9.9%

Central $7,841 -7.8% $9,299 -7.8% $7,186 -7.4% $5,158 -2.5%

East Central $7,917 -6.9% $9,502 -7.6% $7,396 -6.8% $5,153 -4.0%

Southwest $6,060 -4.9% $7,527 -6.3% $5,683 -5.9% $4,189 2.9%

South Central $4,241 -3.6% $5,980 -7.2% $4,128 -3.6% $2,892 5.2%

Southeast $6,716 -2.6% $9,265 -2.8% $6,283 -3.7% $3,783 -0.4%

Iowa Avg. $7,183 -5.9% $8,758 -6.5% $6,705 -5.9% $4,665 -3.5%

Land Values by District and Land Quality, Nov 2016

Livestock and Crop Inventory by District

Inventory 2012 Harvested Acres 2015Chickens,

Layers Hogs Milk Cows Cattle Corn Soybean

Northwest 30% 26% 29% 22% 15% 16%

North Central 64% 16% 4% 6% 14% 13%Northeast 1% 12% 51% 16% 12% 8%

West Central 0% 13% 1% 13% 15% 16%Central 3% 13% 1% 7% 15% 14%

East Central 1% 5% 10% 11% 10% 10%

Southwest 0% 2% 0% 9% 7% 9%

South Central 0% 2% 1% 9% 4% 5%Southeast 1% 11% 3% 6% 7% 8%

State Inventory 20.4 million 20.4 million 0.17 million 2.34 million 13.2 million 9.8 million

Land Values by County, 2016

PercentChangesin Land Values from Nov 2015

ISU survey results echo other surveys

ISU survey results echo other surveys

Federal Reserve Bank of Chicago, Kansas City November 2016 Ag Letter

ISU survey results echo other surveys

USDA June Area Survey, August 2016

Pasture value

Farmland Market Outlook

Consensus: Going downDivergence: Magnitude &

Speed of the Decline

Iowa Farmland Sale Activity Relative to Last Year 1985-2016

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Iowa Farmland Sale Activity Change 1989-2016

More Less Same

Farmland supply tends to be tighter in down years

-20%

-10%

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1986

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Perc

ent c

hang

e

Sale

act

ivity

inde

x (%

repr

oted

mor

e -%

repo

rted

less

)*10

0

ISU sale activity index and percent change in Iowa land value, 1986-2016

(% reported more sales - % reported less sales) + 100

Land Value % Change Sale Activity Index

Limited farmland supply tends to bolster land values

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Num

ber o

f Pub

lic A

uctio

ns

Number of Public Auctions by Month 2011-2016

2011 2012 2013 2014 2015 2016

Farm Credit Service of America

Looking Ahead

Major Positive Factors Affecting Iowa Farmland Market, 2016

0

5

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25

FavorableInterest Rates

Strong Yields Land Availability(Limited Supply)

Strong Demand(Many Buyers)

Positive Factors, 2016 (Percent)

Major Negative Factors Affecting Iowa Farmland Market, 2016

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CommodityPrices (Lower)

Input Costs(Higher)

Cash Rent Rates(Weak)

Livestock Losses Stock Market /Economy/Global

Negative Factors, 2016 (Percent)

Iowa Farmland Purchases by Buyer Types 1989-2016

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Existing Farmers Investors New Farmers Other

Active Farmers

Retired Farmers

Estate Sales Investors Other

PERCENTNorthwest 12 17 64 5 3North Central 8 17 61 10 4Northeast 14 34 43 6 5West Central 12 25 57 5 2Central 13 22 53 8 4East Central 11 24 53 9 2Southwest 15 24 47 13 1South Central 17 24 37 19 3Southeast 11 24 57 10 2

STATE 12 23 53 9 3

Iowa Farmland Purchases by Seller Types, 2016

Cash Crop Price Predictions for Nov 2017, 2018, 2020

Cash Corn Prices Cash Soybean Prices

2017 2018 2020 2017 2018 2020

Northwest $ 3.34 $ 3.65 $ 3.98 $ 9.25 $ 9.61 $ 10.32

North Central $ 3.42 $ 3.59 $ 3.93 $ 9.16 $ 9.46 $ 10.01

Northeast $ 3.41 $ 3.59 $ 3.95 $ 9.19 $ 9.28 $ 9.76

West Central $ 3.34 $ 3.59 $ 4.02 $ 9.12 $ 9.33 $ 10.06

Central $ 3.36 $ 3.50 $ 3.77 $ 9.17 $ 9.40 $ 9.86

East Central $ 3.42 $ 3.58 $ 3.89 $ 9.26 $ 9.51 $ 10.00

Southwest $ 3.31 $ 3.56 $ 3.94 $ 9.15 $ 9.42 $ 10.09

South Central $ 3.36 $ 3.59 $ 3.90 $ 9.51 $ 9.76 $ 10.35

Southeast $ 3.50 $ 3.83 $ 4.17 $ 9.49 $ 9.59 $ 10.08

STATE $ 3.38 $ 3.60 $ 3.94 $ 9.24 $ 9.48 $ 10.06

Farmland Values Predictions for Nov 2017, 2018, 2020

Reported Average Values as of Nov 2016

Land Value Predictions

Nov 2017 Nov 2018 Nov 2020Northwest $9,912 $10,085 $9,786 $9,983 North Central $8,089 $7,908 $7,765 $7,966 Northeast $7,582 $7,799 $7,624 $7,704 West Central $7,628 $7,689 $7,501 $8,058 Central $8,156 $8,623 $8,396 $8,593 East Central $7,976 $8,188 $7,943 $8,057 Southwest $6,452 $6,376 $6,189 $6,560 South Central $4,497 $4,958 $4,796 $4,917 Southeast $7,297 $7,470 $7,451 $7,530

STATE $7,700 $7,858 $7,662 $7,877

Source: Purdue Ag Barometer

Source: USDA-NASS;Ag Census

Iowa Ag Real Estate Values 1850-2016

A replay of 1920s or 1980s farm crisis?

Source: USDA-ERS, Ag DM C2-70, Zhang and Beek (2016) Farm Policy Journal

Key Indicators to WatchLand Value = net income /

interest rate– USDA Farm Income Forecast

• Price Outlook• Ag Exports / Exchange Rate• China• Ethanol, E-85, RFS

– Fed’s move on Interest Rate– Ag Loan Delinquency; Vendor Credit

US Farm Income 1990-2025

Source: USDA OCE

A New, Interactive Iowa Farmland Value Portal

http://card.iastate.edu/farmland/

Iowa Farmland Value Portalhttp://card.iastate.edu/farmland

Iowa Farmland Value Portal

twitter#ISUlandvaluehttp://card.iastate.edu/farmland

Iowa Farmland Value Portalww.card.iastate.edu/farmland

twitter #ISUlandvalue

Thank You!Wendong Zhang

Assistant Professor and Extension Economist478C Heady Hall

Iowa State University515-294-2536

wdzhang@iastate.eduhttp://www2.econ.iastate.edu/faculty/zhang